Captive Insurance Companies- The Ultimate Practice Tools

Posted by & filed under Doctors, Insurance.

Captive Insurance Companies

Captive insurance Companies — The Ultimate Practice Tools
Many Doctors will build their wealth primarily through their professional practice. Typically, the practice is not only the vehicle that allows the client to use Leverage, but also the vehicle which creates the bulk of the client’s annual income and long-term wealth accumulation. Given this fundamental importance, it is essential that Doctors do everything possible to protect the practice and maximize its Leverage potential. The best tool for achieving such protection and Leverage is the one we will discuss in this chapter—the captive insurance company (CIC). In this chapter, we will discuss what a CIC is, what benefits it offers, and how Doctors can use it to maximize the benefits they get from their practice planning.

The CIC
Early in the book, we stressed the importance of using tools that have multiple benefits. By using tools that offer multiple benefits, Doctors can compound their Leverage and achieve a number of planning goals more efficiently than if they tried to reach their goals one at a time. Of all the tools discussed in this book, the CIC can be the most efficient. For clients who own successful businesses or professional practices, the CIC often becomes the cornerstone of the ascent to a desired level of affluence. This is because the CIC affords the following benefits:
· Superior risk management for the practice.
· Reduction in the practice’s insurance expenses to third-party insurers.
· The ability to capture profits on insurance policies.
· Highest levels (+4 and +5) of asset protection for CIC assets.
· Superior income tax treatment for CIC income (when the CIC is properly structured and maintained).
· Significant estate planning benefits (when the CIC is properly integrated with estate planning tools).

· Creation of a potential buy-out mechanism for older owners of the practice upon retirement.
The CIC we will discuss here is a fully-licensed insurance company domiciled either in one of the states that has special legislation for small captive companies or in an offshore jurisdiction which has similar captive legislation. Whenever a CIC is established offshore, it is critical that the CIC be compliant with all US tax rules and must be handled by captive managers, tax attorneys, or CPAs experienced in these matters.

CIC As A Risk Management Toolpost 19
The CIC must always be established with a real insurance purpose—that is, as a facility for transferring risk and protecting assets. The transaction must make economic sense. Beyond this general rule, there is a great deal of flexibility in how the CIC can benefit its owner(s).
First, clients can use the CIC to supplement their existing insurance policies. Such “excess” protection gives the client the security of knowing that the company and its owners will not be wiped out by a lawsuit award in excess of traditional coverage limits. As Doctors, you should be concerned with all types of lawsuits—from medical malpractice to practice risks to employment liability—and this protection can be significant. Further, the CIC may even allow the client to reduce existing insurance, as the CIC policy will step in to provide additional coverage if needed. More

Protecting Your Practice’s Accounts Receivable

Posted by & filed under Business Owners, Doctors, Education, Healthcare, Resource.

Protecting Your Accounts Receivable

Protecting Your Practice’s Accounts Receivable
Since a medical practice’s Accounts Receivable (AR) is typically its largest and most vulnerable asset, one would think that most Doctors would focus on protecting it (Fortress) from the many lawsuit risks that Doctors, medical practices, and any operating business with employees and customers face. Unfortunately, this isn’t the case. Also, since the Doctor earns the right to be paid weeks and often months before the AR is ultimately collected, one might think that most Doctors would try to apply the concept of Leverage to this unproductive asset (Engine) to get more out of the asset. Again, you would be wrong.
In this Chapter, we will explain the exposure of a practice’s AR to claims against the Doctors and employees of the practice. Then we will compare and contrast two options for protecting the AR and leveraging this asset for further wealth creation.

How Doctors Lose Their Accounts Receivablepost 17
A medical practice’s accounts receivable (AR) is the Doctor’s most vulnerable asset when it comes to losing wealth in any claim against the practice. These claims can be medical malpractice claims, employment claims, healthcare related suits, or any number of financial risks to the practice. This financial risk exists because every case against a physician or the practice will include the medical practice as one of the defendants in the lawsuit. When there is a successful lawsuit against the practice, attorneys will look to corporate assets to satisfy the corporate debt. What is the biggest (and possibly only) liquid asset that a practice has? The Accounts Receivable (AR).
The accounts receivable has already been earned by your practice. You are only awaiting payment. Most medical practices “turn over” their AR every 60-90 days or so. This means the creditor only needs to wait 2 or 3 months, at most, to get access to your AR. It doesn’t matter that the AR is used to pay salaries and expenses. Once there is a lien against the AR, it becomes the property of the creditor and you have to find other ways to pay salaries and expenses. More